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"Having spent most of the federal surpluses they inherited to fulfill largely foolish campaign promises, the Harper Conservatives showed a few signs yesterday of getting more serious about what the country really needs," The Globe's Jeffrey Simpson wrote Wednesday in his column Political bribes and economic foolishness

"The trouble remains, however, that the progress is too slow, in part because the Conservatives had already stripped tens of billions from federal coffers through transfers to provinces, the two-point reduction in the goods and services tax and the family allowance program that they misnamed a child-care policy.

"With the fiscal cupboard depleted and the economy slowing, yesterday's budget by definition had to be a modest affair — so modest that it will neither lift the Conservatives into majority government territory nor embolden the Liberals to believe they can make political hay from it."

Whether you agree with him or not, that's a provocative thesis.

So, we're glad that Mr. Simpson was online earlier today to take your questions on the budget and its potential political impact.

Your questions and Mr. Simpson's answers appear at the bottom of this page.

Mr. Simpson has won all three of Canada's leading literary prizes — the Governor-General's award for non-fiction book writing, the National Magazine Award for political writing, and the National Newspaper Award for column writing (twice). He has also won the Hyman Solomon Award for excellence in public policy journalism. In January 2000, he became an Officer of the Order of Canada.

He joined The Globe and Mail in 1974. His career with the newspaper began at City Hall in Toronto and with coverage of Quebec politics. In 1977, he became a member of the paper's Ottawa bureau, and eighteen months later he was named The Globe and Mail's Ottawa bureau chief. From 1981-1983, Mr. Simpson served as The Globe's European correspondent based in London, England. He began writing his national affairs column in January, 1984.

Mr. Simpson has published six books — Discipline of Power (1980); Spoils of Power (1988); Faultlines, Struggling for a Canadian Vision (1993); The Anxious Years (1996) and Star-Spangled Canadians (2000). His most recent book, The Friendly Dictatorship: Reflections on Canadian Democracy (2001), was nominated for the Donner Prize as the best book on public policy.

Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements.

Please be advised that Mr. Simpson will take questions only from readers who use their name and home town, rather than a pseudonym.

Jim Sheppard, Executive Editor, globeandmail.com: Good morning, Jeffrey, and thanks for joining us today to take questions from the readers of globeandmail.com.

You have written repeatedly — and told our online readers in past discussions — over the past two years that everything Prime Minister Harper and his advisers do is geared toward winning a majority government.

We know that Mr. Dion has said the Liberals won't bring down the Conservative government over the budget that Finance Minister Jim Flaherty presented earlier this week.

But was it a budget on which the Tories would really have wanted to fight an election?

It certainly wasn't the goodie-stuffed package that normally precedes an election.

If so, what do you think was their political calculus in preparing this budget, which has been called everything from "prudent" but not exciting on the positive side to "stingy" on the negative?

Jeffrey Simpson: Hello again, Jim.

There could not have been a "goodie-filled budget," by definition, because the Conservatives had emptied the cupboard with their previous budgets and last fall's economic statement — plus the slowdown in the U.S. (and world) economy that will reduce the increase in government revenues.

So that kind of budget was never on.

The fall economic statement — that should be read as part of this budget — was designed to be the election launch pad, if necessary, except that the engines failed and the government received no lift from the budget, much to their surprise and consternation.

When you don't have much money to spend, you call the budget "responsible," which is why the budget carried this title.

Brian Lowry, Fredericton, N.B.: Hi, Jeffrey. Beyond their very unwise campaign promises, this government seems almost purely reactive these days. Is there some silver lining in that?

Jeffrey Simpson: Brian, there's a silver lining in being reactive?

Well, as I said in the first response, you should try to read this budget in conjunction with the fall economic statement — the one that cut personal and corporate taxes, and sliced the GST by another point.

If you put those measures together with the ones in the budget, the Conservatives have actually done quite a lot, especially on the tax-reduction side.

What they have done, in my judgment, is mostly unwise. But they have done a lot and therefore should not be described as "reactive."

Brent Beach, Victoria, B.C.: Part of the big increase in federal spending over the last two years has been in transfers to the provinces.

Harper is devolving more responsibility for programs to the provinces along with the cash to pay for them. This is certainly in line with his pre-election stress on a smaller role for the federal government.

Do you see Harper stepping even further back by just giving more tax room to the provinces in return for dropping any or all of these transfers? Fiscal imbalance payments dropped in return for a couple of points of personal income tax and corporate tax, for example?

Jeffrey Simpson: Brent, that's a very intelligent question.

In Australia, the central government agreed to turn over the revenues from the national sales tax to the states in exchange for ending many transfers.

This macro idea has been thought about in Canada, but never seriously pursued by governments, or to my knowledge seriously studied by academic experts.

I think it would be worth looking at something like this: Ottawa gets control of all corporate taxation so that provinces don't compete among themselves; some of the GST revenues are transferred to provinces and municipalities; and Ottawa ends certain transfer payments in exchange.

That kind of fiscal re-arrangement would take a lot of work.

What ought to have happened, in my view, after the Conservatives (unwisely) cut the first point of the GST was that provinces ought to have raised their sales taxes to fill the gap if they needed revenues.

But it was politically much easier for them to demand more money from Ottawa than raise their own taxes.

And Quebec, of course, where taxes are already the highest in the country did not want to raise them any more, but preferred to claim a "fiscal imbalance" had been discovered and then rallied its forces to extract the money from Ottawa.

Ed Long, White Rock, B.C. Canadians always vote with their wallets and I see blackening economic clouds on the horizon.

After decades of tax-and-spend social engineering, we are now in a period of paying down the debt, saving, and targeted spending.

A GST cut is more progressive than adding another tax regime, especially during an economic downturn, such as B.C.'s laughably irrelevant carbon tax. Would you agree?

Jeffrey Simpson: Ed, I would respectfully but totally disagree.

Almost every economist I know or read believes that spurring savings and investment is much better achieved by reducing personal and corporate income taxes, rather that cutting consumption taxes.

Remember that in an open economy, much of what is consumed with the disposable money "leaks" out of the country in the form of buying imports, holidays or whatever.

As for the carbon tax, as you know all the money will be recycled back into the B.C. economy through lower personal and corporate income taxes.

In short, it is an excellent model over time to move people and companies away from fossil fuel-based products that cause global warming — and B.C. of all provinces should know about that peril given the devastation being caused from the mountain pine beetle — and put more money into personal and corporate bottom lines.

B.C.'s budget is the best I have seen in decades in Canada.

Gary Wilson, Calgary: Does B.C.'s well-developed carbon tax plan make it any more likely Harper and or Dion will pay some long overdue attention to the climate crisis issue?

Or does political cowardice still rule at the federal level?

Jeffrey Simpson: Gary, there is no chance whatsoever that the Harper government will embrace a carbon tax.

Their ideology gets in the way of clear thinking about this.

Remember that when the idea of raised, the government's designated pit bull, Environment Minister John Baird, attacked it as some kind of "Liberal scheme." Pardon me, I've forgotten his precise epithets.

As for the Liberals, many of them know that a carbon tax is the right way to go — and Michael Ignatieff had the wisdom to recommend one in the leadership campaign — but the Liberals are scared politically.

That is why the medium-term political reaction to the B.C. initiative is worth watching. If the reaction is bad, then other governments across Canada will get scared. If it is positive, the reverse might happen.

William Lachance, Halifax: Can you see a Conservative government instituting a nationwide carbon tax, like we've seen in British Columbia?

If so, what do you think it'll take to bring them to that position?

Do you think the election of a majority government would change anything in this area?

Jeffrey Simpson: William, See above. No chance for the Harper government to introduce a carbon tax.

A carbon tax will come in many jurisdictions after all the other ideas deemed more politically palatable have been tried and failed.

We now know that voluntarism, exhortation and subsidies will not get the job done, although there is nostalgia for all. Cap-and-trade will help with large final emitters.

The carbon tax changes consumer behavior. So it will come, because logic requires it if we want to tackle seriously GHG emissions.

But it will take time, and the Harperites with their ideology just won't have it. Other provinces will, however.

Neville Tencer, Victoria, B.C.: Dear, Mr. Simpson, thank you for taking my question.

Since you co-authored the book Hot Air, I have this question for you: I wonder how much of the $240-million for CCS is actually new money? Or are we just talking about more "hot air" from the government?

Last year, the same government announced a program to provide $230-million towards CCS. This was the part of a larger $1.5-billion dollar package to be spent over four years.

Most of $230-million, I might have assumed, went to Encana and maybe some to ICO2N, the only two organizations in Canada doing anything with CCS.

Encana is based in Saskatchewan and has been using CCS at their Weyburn oil site for a number of years. Encana receives captured carbon from coal gasification plant in North Dakota.

I understand this latest series of funds will be directed towards the construction of a clean-coal power plant again in Saskatchewan for SaskPower. One could also assume that SaskPower could sell the same captured carbon to Encana.

Therefore, given this latest budget, does this mean the government has just reannounced the same program? Or are these additional funds beyond the $230 million previously announced back in January 2007?

Jeffrey Simpson: Neville, you asked a great question. I freely reply that I do not know the answer.

Neville Tencer, Victoria, B.C.: A second question, Mr. Simpson.

David Suzuki raised the notion of using carbon taxes to not only reduce carbon emissions but either reduce income taxes or secure additional government revenues.

The former means the exercise is tax neutral, the latter means additional revenues for the government.

Costs such as health care and old age assistance are expected to rise significantly in the future and governments will be forced to secure additional taxation revenues to finance these expenditures.

Raising income tax rates seem politically unwise as most governments have been focused on actually reducing these types of taxes.

Carbon taxation provides government a massive windfall in new additional taxes that could be used to fund these higher costs.

Do you think that sometime in the future governments will be motivated to implement carbon taxes not so much to actually reduce carbon emissions but to secure additional government taxation revenues?

Jeffrey Simpson: Neville, I would never counsel the imposition of a carbon tax for the purpose of raising government revenues alone.

As I have said, I think the money should be recycled back into the economy through lower taxes elsewhere.

William Starling: Mr. Simpson, I'd like to hear your comments on the $5,000 investment tax-free — the pros and cons vis-à-vis the Conservative election promise of capital gains reinvestment.

Jeffrey Simpson: William, by definition, it has to be better than the campaign promise that was so poorly thought-out that it has been shredded by the Finance Department.

It would have been hugely beneficial for the rich but done nothing for the poor.

Ask yourself this: If you earned, say, $30,000 and were married, how much money do you think you could put into one of these new funds, compared to, say, someone who earned $75,000 in the same situation.

You have my answer.

Andrew Chong, Toronto: The personal buzz is about TFSAs.

While they start small, it potentially adds up to a lot: $5,000 saved each year for 50 years from 18 to 67 = $250,000 plus growth, on which no tax on earnings needs to be paid.

That could save several (and maybe tens of) thousands of dollars in taxable income. But for governments, this could be a slow-fuse bomb.

The plan does reward new savers and not existing savers. I wish they had this 30 years ago.

But if the government were interested in encouraging savings, they should limit the rollover amount (say, to 10 years' worth), so someone doesn't just wait for a large inheritance and stuff it into a TFSA. What do you think?

Jeffrey Simpson: Andrew, it's hard to predict just how popular these will be.

Low-income people won't use them because they don't have the disposable income at their fingertips.

The government estimates that when fully operational these TSFAs will amount to $3-billion based on today's economy.

But then Mr. Flaherty the next day said, without mentioning a number, that they could be very big indeed, the modern equivalent to RRSPs and REPs.

Once this vehicle is established, no one should expect the rules to remain the same forever. Just as RRSP rules have been changed, so these will be — both the rules governing what can be done with the money inside the TSFA and the $5,000 limit.

So looking down the road, it's very hard to estimate.

I will add this. The other funds have specific and very worthwhile social objectives, allowing people to plan for their retirement if they do not have pension plans, and planning for their children's education.

This plan has no social objective. In fact, it's political ambition — to attract middle, and especially upper-middle class voters — was made brazenly evident in the budget where it said the fund would help people save, among other things, for purchasing an RV or going to Florida.

Sorry, I've been around a long time, and I've never seen a government of any stripe announce and justify a policy so materialistically targeted.

Albin Forone, Toronto: With you, Mr. Simpson, I'll step back from my greedy personal interest in details of TFSA to air my political suspicion that there is yet another budget shoe to drop in the event of a recession.

I checked the official government "overview" of the budget to learn that the top change items for 2008/9 are very roughly: Debt reduction at $10B (with projected $2B in "tax back" income tax relief, probably under-publicized), corporate (CCA) and personal (GST and TSFA) tax cuts mushy but maybe $2B, education $0.5B, research $0.5B, public transit $0.5B, eco/nuclear $0.5B, crime $0.5B, AIDS and foreign aid $0.5B, defence/Afghanistan $0.6B.

It seems to me, that overwhelmingly big pot of projected "debt repayment" will be reopened to become the fighting ground for the next election if a recession takes hold.

Your thoughts appreciated.

Jeffrey Simpson: Albin, sorry, but when you give money to repay debt, you can't get it back.

You can borrow more from another source, but can't take that money back.

Randy McClure: Hello, Mr. Simpson. Thank you for participating in these G&M "lunchtime" conversations.

You've written a lot about the Conservatives' lack of economic prudence at the expence of crass political populism. Tax cuts coupled with record expenditures have "left the cupboard bare."

Republicans in the United Stats now admit their implementation of voodoo economics was designed to systematically starve the government of funds so that policy makers down the road — regardless of political stripes — would be forced to cut programs.

Republican strategist Grover Nyquist famously said his goal was to shrink the governemnt to a size so small he could drown it in the bathtub.

Do you think the Harper government is that cynical?

Judging by the writings of advisors like Tom Flanagan where he advocates achieving power through stealth, or the latest allegations that Conservatives tried to effectively "buy" Chuck Cadman's vote a few years ago makes me fear that they are.

If they seem to be so afraid that people won't like what they REALLY want to do, why should we ever trust them?

Jeffrey Simpson: Randy, I'm going to write about this in Saturday's column, so I invite you to read it. But you've asked a good question.

I would say that reading a budget is often the best way to understand the thinking and world view of any government.

Reading the Harper government's budgets and the economic statement gives us two perspectives on the government.

First, as Mr. Harper has often said, he wants the government to do fewer things but to do them better.

So he is happy that Ottawa scale back its commitments elsewhere, and transfer money to provinces for these purposes, while putting more money in what he considers "core" federal responsibilities such as defence.

And their second preference is for government to do less period, and to cut taxes.

They have been able to do the latter while avoiding the former because they inherited such a strong fiscal situation from previous governments, and the Canadian economy (or at least parts of it) has boomed, thereby producing a cornucopia of revenues.

They "spent" most of this on tax cuts, consistent with their ideology. But they have cut almost no government programs — none of any size.

Government spending is still going up and is projected to continue rising at about 4-5 per cent a year — despite a much-ballyhooed "review" of government programs.

So unlike Harris in Ontario or Klein early in his Alberta mandate, there has been no shrinking the size of government.

Chris Lalonde, Singapore: Jeffrey, if you were a benevolent dictator with absolute power over Canada, roughly how would you have structured the tax rates (GST, personal, corporate, capital gains, etc.) to best serve the nation?

Jeffrey Simpson: Claude, I am a benevolent dictator only in the little box I am privileged to occupy four times a week in The Globe and Mail.

The notion of being outside that box and being in active politics — as I have been invited to consider on various occasions — is unimaginable since I could not get elected dog-catcher.

However, as benevolent dictator in my little box, I have recommended that the GST be restored to its previous level — thereby adding $60-billion or so to government revenues over the next five years, on top of which a carbon tax would be added to rise over time (another form of consumption tax) and that the amount of money raised by the two taxes be used to (a) help low-income people cope with higher consumption taxes, (b) recycle into personal and corporation tax cuts, (c) invest in human capital development and the country's deteriorating physical infrastructure.

Reasonable people could argue about the relative shares of (a), (b) and (c), but this is the kind of approach that would do far, far more for the country's long-term competitive and productive capacities, on which our future standard of living depends, that what the Harper government's policies will do.

And that is why I have been so critical of them.

Someone I respect said to me at an Ottawa schmoozefest last night that he had read all the media clippings about the budget from across the country, and I was the only one who took the take I did on the budget.

"You're 'lonely'," he said. I took it as a compliment, because what's so distressing these days is that what passes for "analysis" is overwhelmingly about the political motivation and reaction to whatever governments do.

People like you, and those who participate in these online discussions are much more interested in debates and discussions about substance and options than political ups and downs.

As a consequence, the gap widens between the media and the voters. But that's a subject for another time and place.

Daniel Medd, Toronto: Mr. Simpson, thank you for taking our questions.

On the right, we have a Conservative government saying they still think Canadians pay too much in taxes.

On the left, we have the NDP urging massive public investment (i.e. spending) to help maintain standards of living.

The Liberals have, at least in recent history, tried to straddle the fuzzy middle, balancing spending and fiscal prudence.

Bu has the middle shifted? Or is the current Liberal party incapable of defining that middle ground?

For example, the last GST cut was roundly panned and hasn't quite inspired the public to vote Conservative.

Meanwhile, citizens continue to complain about infrastructure, health care, environment, etc., and the fact that not enough government resources are spent addressing those issues.

But if the Liberals were to suggest raising the GST by one percentage point, it would likely be political suicide. Your thoughts?

Jeffrey Simpson: Daniel, I don't think that what you advise the Liberals to would be suicide at all — and various polling people agree with me.

What's stilly, if not suicidal, is not having a position, which is what happened when the Harperites announced their GST cut in the fall.

The Liberals under their leader said they would consider their position after they were elected.

When you don't have a position, you encourage/allow your adversaries to paint your position for you to the public, which is exactly what happened.

The Harper propaganda machine went into action, running television ads warning that if elected the Liberals would "raise your taxes."

The Liberals don't know where they stand really.

But if they stood up and said: We're going to raise the GST, collect $60-billion in foregone revenue in the next five years, recycle $30-billion back into personal and income tax cuts for low- and middle-income families, and spend $30-billion on social programs and infrastructure, they would have drawn a clear distinction between themselves and the Conservatives, and would find a constituency for that approach.

Would they win an election on it? Who knows.

But at least they would stand for something. Right now, they are paralysed by political fear because they think, as your question presupposes, that it would be "political suicide."

Jim Sheppard: Thanks again, Jeffrey. I'm sure our readers appreciated your insight and analysis. Any last thoughts?

Jeffrey Simpson: Jim, thank you and the online readers.

Despite much needless media speculation and even hyperventilating, there never was a serious chance of an election any time soon, so we can put that prospect off for some time.

Jim Sheppard: And thanks to all of our readers who submitted questions today. As usual, we're sorry we cannot take every one of them in the hour alloted for this online discussion.